Editore"s Note
Tilting at Windmills

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January 26, 2004
By: Kevin Drum

CONNECTIONS....I've come across several snippets of economic data/analysis recently that provide a surprisingly connected view of what's going on in the economy these days. This might get a little long apologies in advance but here are four data points to ponder:

  1. Over in the Weekly Standard, Irwin Stelzer joins the legions of conservative economists who have discovered a newfound interest in judging employment by means of the government's Household Survey (phone calls to households asking if people are working) instead of the more traditional Payroll Survey (phone calls to businesses asking how many people they employ). Why? As near as I can tell, it's because the Household Survey shows a fairly rosy employment picture, and that's what they want to believe.

    Of course, one can't just come out and say that, so some kind of plausible explanation needs to be offered up instead. But what? Stelzer suggests that firms are outsourcing jobs (say, at the company cafeteria) and that the Payroll Survey counts the job lost by the original firm but not the job gained by the outsourcing firm. So statistically it looks like a job loss, but in fact net employment stays the same.

    Ignore for the moment that Stelzer provides no evidence that this is actually happening. Give him the benefit of the doubt. Instead, ask yourself this question: do you think the outsourcing firm pays the same wages as the original company did? After all, this is a company that presumably won the cafeteria contract by demonstrating that they could save the company money, and labor costs are surely a large component of saving money. Keep this in the back of your mind for a moment and let's move on.

    (Background on the two different employment surveys is here if you're interested.)

  2. The Los Angeles Times reports that California is suffering from a "shift of jobs from high-paying industries to lower-paying sectors such as retail sales and tourism." They are quoting a report issued by Comrade Max's employer, and as you can see from the map on the right it's a nationwide problem: every state except Nevada and Nebraska is seeing a shift from high paying industries, which are losing jobs, to low paying industries, which are gaining them.

  3. Also in the LA Times, business columnist Michael Hiltzik has an excellent and insightful piece on the Southern California supermarket strike. Bottom line: the unions have stayed regional while the supermarket chains have become national behemoths. As a result, say union leaders, they are "surprised at the absence of the collegial we-can-work-it-out atmosphere that prevailed at negotiations in past contract cycles. Yet that's what happens when labor policy is made not by executives who live in the same communities where they've provoked a labor war, but by corporate bureaucrats ensconced thousands of miles away."

    The unions have done a poor job of telling their side of the story, but the fact is that the supermarket chains aren't just asking for a $5/week copay for health insurance, as their newspaper ads suggest. Rather, they are trying to substantially cut both wages and benefits across the board. And when stalled talks resumed last month, the chains actually produced a new offer than was even worse than their original one.

  4. And finally, of course, there's Wal-Mart, rampaging through the countryside driving all before them. If you want to keep up, you have to match Wal-Mart's subsistence wages and benefits, and that means the race to the bottom is in full swing everywhere Wal-Mart has a store. Which means everywhere.

These anecdotes all point to the thing that bothers me the most about the direction of our economy: there are too many trends that are squeezing the wages of traditional working-class and middle-class workers. During the past 30 years workers in the bottom half of the distribution have seen their hourly wages increase only 10%, and among male wage earners during the same period the median income has barely budged at all. The problem isn't economic growth per se per capita GDP has grown about 60% during this period but rather that virtually all that additional wealth has gone to the already well off. Those in the middle and at the bottom aren't getting any better off despite economic growth, and as a result, instead of a growing middle class that's optimistic about its future, we have a middle class that's slowly but steadily stagnating and increasingly worried about its survival.

The typical conservative response to this is a collective shrug: things really aren't that bad, are they, in this age of Nintendos and big screen TVs for all? And there's some truth to this: living standards are still high for most people and there are no mobs with pitchforks roaming the streets in American cities. But what about tomorrow?

The sign of of a healthy economy is not so much that living standards are high for the middle class, but that they are getting higher that people believe their children will be better off than they are. But as income inequality increases and income mobility decreases that's increasingly not the case, and the question at hand is whether we ever plan on doing anything about it. How long does the middle class have to stagnate in the midst of ever more stratospheric wealth for the rich before even conservatives finally admit that we have a problem?

The problem is not just one of social justice, either. One of the counterintuitive facets of the U.S. economy that various pundits and researchers keep independently "discovering" usually with a tone of dismayed wonder is that nearly all economic indicators in the past half century have been stronger under Democrats than Republicans. The data is hardly conclusive, but it is suggestive, and it shows that economic growth, stock market growth, budget deficits, unemployment, and inflation all tend to be better under Democrats. But why? Given the fact that the economic policies of the two parties have been so inconsistent over the years, is there anything that can account for this?

I think there is, and it's simple: Democrats care about middle class job growth. They always have. Conversely, at various periods Republicans have concerned themselves not directly with jobs but instead with inflation, or with balanced budgets, or most recently with obsessive tax cuts.

But there's no evidence that tax cuts increase economic growth at least not at the levels that we have in the United States. Ditto for balanced budgets and low inflation. But robust middle class employment is a different matter: if you take direct aim at that you're almost guaranteed that the economy is going to do well as a result. How could it not? If you have a large, growing, well-paid middle class that's spending ever larger sums of money without going into ruinous debt, the economy will be humming along almost by definition. Call it trickle-up economics.

So even if you don't think that economic equality is any concern of the government, you should still be concerned about our ever more squeezed middle class. They are the engine of economic growth, and if we continue to pursue policies that ignore them the entire economy will pay the price. We need to start paying attention before it's too late.

Kevin Drum 10:45 AM Permalink | Trackbacks

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